HB 501 

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Copy 1 



"THE INVESTMENT FUND" 



AN ADDRESS 

BY 

HON. GEORGE E. ROBERTS 

DIRECTOR OF THE MINT 



Delivered before 

THE FARM MORTGAGE BANKERS' ASSOCIATION 
OF AMERICA 

at Chicago, 111., October 10, 1914 



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W. F. ROBERTS CO. 
WASHINGTON 




THE INVESTMENT FUND 

Mr. President and Members of Farm Mortgage Bankers' 
Association of America: 

The business of investment banking, of finding free capi- 
tal in one place and moving it in another place where it can 
be profitably used, has had great development in recent 
years as a result of the rapid accumulation of wealth. The 
particular branch of the business which you represent, that 
of finding capital for the farming industry, should enlist 
an unusual degree of public interest just now, because there 
is much evidence that farming in recent years has not been 
keeping pace with other branches of industry. 

AGRICULTURE NEEDS CAPITAL 

The production of farm staples is not increasing as fast 
as the production of other goods, the increase of land under 
cultivation in this country i§;'rio longer keeping pace with 
the growth of population, ana! the gain in yield per acre 
has not been sufficient to meet the growing demand. Agri- 
culture is unquestionably the industry of first importance. 
Its products include not only foodstuffs but the materials 
for clothing, and the expenditures of the average family 
for food and clothing are so large a proportion of its total 
expenditures that a rise in these costs may easily offset all 
gains from other sources. This tendency of late has put 
the whole industrial situation under strain. The result 
of new labor-saving inventions in all departments of in- 



dustry, of enormous additions to capital investments, and 
of improvements in organization and transportation, would 
naturally appear in lower prices for most of the commodi- 
ties of trade, but these influences have been counteracted 
and, in part at least, overcome, by the great rise in the 
prices of farm products and raw materials. So I repeat 
that any movement that promises to give aid and encour- 
agement to agriculture should be very welcome at this time. 
Our farms need to be brought up to a higher state of cul- 
tivation, and there are vast areas of land in this country now 
idle, or practically so, which, by the use of capital by way 
of clearing, draining, irrigating, subduing or improving by 
other means, can be made to yield good returns upon the 
expenditures and help to supply the necessaries of life to 
our growing population. Agriculture, the world over, needs 
to be brought up in productiveness and efficiency abreast 
of the other industries. There is no other field in which 
progress signifies so much for the general welfare, and it 
is encouraging to see the numerous signs of a revival of 
interest in it. 

IMPORTANCE OF NEW SUPPLIES OF 
CAPITAL 

I do not intend, however, to go into a discussion of your 
particular investment field further than to point out how 
the demand for capital that you are attempting to supply is 
related to the welfare of the entire community, and thereby 
pass to a brief consideration of the value to society of the 
general Investment Fund upon which all branches of in- 
dustry are constantly drawing for the means to make fur- 
ther progress. 

Everybody understands in a general way that it is a good 
thing for an individual to save something for a rainy day, 
and that the value of land goes up when a railroad is built 
within convenient distance, and yet not many people act as 
though they had any adequate comprehension of the part 



that new supplies of capital play in the advancement of in- 
dustry and in the improvement of social conditions. 

Somebody who has accumulated capital will come for- 
ward upon your representations and advance the means for 
draining and otherwise improving a tract of land hereto- 
fore unproductive, with the result that the land itself will 
reimburse the investment fund and yield ever after an an- 
nual contribution to the national income. 

Similar applications of capital from the investment fund 
are constantly being made all around the circle of indus- 
tries. The entire industrial situation is constantly under- 
going change. The organization, methods and mechanical 
equipment are always changing, new and more effective 
means and processes being substituted for the old. Every 
day, in every branch of industry, the brightest minds are 
searching for new and better ways of accomplishing re- 
sults. Every night restless brains are dreaming and strug- 
gling with problems, the solution of which means progress 
for the world. All of these changes cause demands upon 
the investment fund. They must have capital to introduce 
them. Labor must be expended, men must be employed, 
machines must be built and installed, expenditures similar 
in their way to the drainage and improvement of a farm 
must be made in advance of any returns, and upon faith 
that the new idea will become a wealth-producer. 

ALL INDUSTRIES CONTRIBUTE TO AND 
DRAW FROM THE GENERAL INVEST- 
MENT FUND 

In this progressive movement sometimes one industry is 
making the more attractive appeal for capital and develop- 
ing more rapidly, and at other times other industries are 
offering the greater opportunities. All in their periods of 
prosperity yield additions to the investment fund, and each 
in its periods of expansion draws upon the fund for more 



than its contributions, so that out of the general surplus 
they finance each other's advancement. Some of them have 
had a gradual, more or less uniform, development over a 
comparatively long period of time, while others, revolu- 
tionary in character and based upon modern inventions, 
have grown with amazing rapidity. 

APPLICATIONS OF ELECTRICITY 

The applications of electricity belong to the latter class. 
The practical use of electricity for generating light and 
power dates back only about thirty years. The United 
States Census Bureau in 1912 found the total investment 
in central electric lighting stations and hydroelectric sta- 
tions in this country to be $2,175,000,000 and that it had 
increased 227 per cent in the previous ten years. The same 
authority reports that in 1890 there were 1,262 miles of 
electric railway in the country, and in 1912 40,800 miles. 
At the latter date the investment in electric railways was 
$4,500,000,000. The total of all investments based upon 
the use of electricity in this country today is probably not 
less than $8,000,000,000. 

THE TEXTILE INDUSTRIES 

The manufacture of cloth, on the other hand, one of the 
primitive household industries but now standing first among 
factory industries in the employment of capital, with an 
investment in the United States of approximately $2,000,- 
000,000, has reached its present development by constant 
progress over a period of one hundred and fifty years. 
Changes in the technical processes have been very numer- 
ous, many of them of minor importance standing alone but 
in their cumulative effect accomplishing great gains in 
which the general public has shared. Not to go back of 
1880, and selecting the year 1906 for comparison with it, 
because the price of raw cotton averaged practically the 



same in these two years, we find that the staple cotton goods, 
sheetings, shirtings, drillings and standard prints, aver- 
aged from 14 to 30 per cent lower in the latter year than 
in the former.* Some of the greatest gains to the cotton 
cloth industry have been made in facilitating the production 
and preparation of raw cotton, notably in the invention of 
the gin and the compress and in the utilization of the cotton 
seed. The economies thus effected have reduced the cost 
of producing raw cotton and been the most potent of all 
factors in reducing the cost of cotton goods. 

The increase of capital investment which has accompa- 
nied the development of the cotton goods industry is shown 
by the following figures from the United States Census 
reports : 

1831 — Capital per employee $651 

1880— " " " 1207 

1899— " " " 1899 

1909— " " " 2170 

IMPROVEMENTS IN THE STEAM ENGINE 

The gains that are being constantly made in the efficiency 
of the steam engine are causing a continual reconstruction 
of power plants, for which heavy outlays of capital are re- 
quired, but, resulting, are new economies in all branches 
of industry and new contributions to the investment fund. 
It is estimated that the average consumption of coal to gen- 
erate a horse-power today is only about one-half what it 
was forty years or fifty years ago. In other words, if we 
had to generate the same amount of power we are using 
today with steam plants of the type of fifty years ago we 
would be obliged to mine and transport and handle twice 
as much coal as now, and would be exhausting our coal 
supplies twice as fast as we are; all of which, of course, 
is only figurative, because industry would not be what it is 
if the steam engine had not been made what it is. 



*Copeland: "The Cotton Manufacturing Industry," page 268. 

7 



IMPROVEMENTS IN TRANSPORTATION 

The industry ranking next to agriculture in importance, 
and which is more dependent than any other upon the gen- 
eral investment fund, is the industry of transportation. It 
is a vital factor in modern life. The development of the 
railways has had almost as much to do with the develop- 
ment of other industries, and with the enormous increase 
in the consumption of all products, as the developments 
within the other industries themselves. Moreover, the rail- 
way business, taken as a whole, has never been in position 
to finance itself out of earnings. If the earnings above 
operating expenses of all the railways in the United States 
were turned into a common fund for extensions and im- 
provements, all interest and dividend payments upon capital 
being suspended, the fund so created would not be large 
enough to make the extensions and improvements that are 
required to keep the railways up to the growing require- 
ments of this country, and this has been the situation from 
the first. Expansion in all of the other industries is fo- 
cused upon the railways and requires more service from 
them. 

A large part of the new capital is always going to pro- 
vide for efficient and economical operations in the future. 
It is being used in substitutions, as well as additions, to 
install superior equipment, which will save in labor more 
than the interest on the investment and permanently lower 
the costs. The gains of efficiency in the steam engine are 
reflected in similar gains in the locomotive. Large expendi- 
tures have been made upon the railways, in straightening 
curves and reducing grades, to lighten the locomotive's task. 

In order to reduce the dead load, freight cars have been 
more than trebled in capacity since 1870, and nearly 
doubled in the last ten years. In 1870 the typical freight 
car in the United States was of 20,000 pounds capacity, 
but on June 30, 1913, the average capacity of all the freight 
cars in use in the United States was 38.26 tons.* Along 

*Report of Interstate Commerce Commission, 1913. 

8 



with the increase of train loads there had to be a recon- 
struction of roadbed, track and bridges, calling for heavy 
outlays of capital. 

This policy of increasing the capital investments in rail- 
ways in order to reduce the operating expenses is simply an 
extension of the policy under which railway transportation 
was first substituted for wagon transportation. The gains 
from 1880 to 1910 are shown in the following figures from 
the reports of the Interstate Commerce Commission : 

No. railway Tons of freight carried one mile. 

employees. Total. Per employee. 

1880 418,957 32,348,846,693 77,213 

1890 749,301 76,207,047,298 101,704 

1900 1,017,653 141,596,551,161 139,140 

1910 1,699,420 255,016,910,451 150,061 

1913 1,815,239 301,398,752,108 166,038 

These figures show that since 1880 the efficiency of the 
railway plant has been more than doubled. If its efficiency 
had been the same in 1913 as in 1880 twice as many men 
would have been required to handle the volume of busi- 
ness. This expansion of traffic, however, would have been 
impossible without the improved facilities. 

INCREASING IMPORTANCE OF CAPITAL 
IN MANUFACTURES 

Similar evidence of the steadily growing importance of 
capital as a factor in all the industries appears in the United 
States Census returns. The following figures show the 
percentages of increase in capital, wages, number of wage- 
earners, primary horse-power employed and value added 
by manufacture, in twelve leading and representative in- 
dustries, and in all manufactures combined, for the ten years 
1899-1909, as reported by the Thirteenth Census:* 

♦Volume VIII. 



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Those figures show that this country gained enormously 
in the productive capacity of its manufacturing establish- 
ments during these ten years, and that the amount of capi- 
tal employed in manufactures more than doubled. The in- 
crease of 85 per cent in amount of power employed must 
be considered in connection with the higher efficiency of 
factory equipment generally. The increase in railway ton- 
nage shown above, and the fact that the consumption of coal 
doubled in the same ten years, correspond with these fig- 
ures, and show that we are making progress by tremendous 
strides. The population of the country increased during 
the same period by 21.4 per cent. 

RAILWAYS LESS THAN ioo YEARS OLD 

It should be remembered in this connection that the 
world's entire investment in railways has been made within 
less than one hundred years. On Stephenson's railway in 
England, opened in September, 1825, a locomotive was able 
to draw a trainload of 92 tons at the rate of five miles per 
hour. Today the steam and electric railways of the world 
represent a cost for construction of not less than $50,- 
000,000,000, all of which had to be saved and withheld 
from current consumption in order that it might be applied 
to this purpose. 

THE BEGINNINGS OF CAPITAL IN INDUSTRY 

The locomotive followed naturally upon the successful 
development of the steam engine, and the factory system 
of production, with the enormous gains resulting from the 
organization and division of labor, began at the same time. 
From this period dates the application of capital to produc- 
tion under modern methods. Prior to this time production 
had been by the handicrafts and household industries, and 
the investment in tools was small. Money-lending was to 
traders, or to rulers for warfare. So little of it was for 

11 



productive purposes that there was no popular comprehen- 
sion of money-lending for such use. The Church con- 
demned the taking of interest, which in all cases was called 
usury, upon the theory that money was unproductive and 
that borrowers were usually people in distress, from whom 
it was unchristian to exact a fee for an accommodation. 
This idea, that a debtor was necessarily a person who had 
met with misfortune or was falling behind in his affairs, 
has been prevalent even down to the present day, and there 
is enough basis for it so far as the implications of trouble 
are concerned to keep it alive indefinitely. The average 
man still finds it hard to get out of debt. 

ENGLAND'S LEAD IN INDUSTRY, SHIPPING 
AND BANKING 

Previous to the wars of Napoleon Holland was the chief 
market for what little international borrowing was done. 
The wars were very exhausting to all of the European coun- 
tries, but although England was constantly involved, in- 
dustry was not interrupted there as it was on the conti- 
nent. Considerable continental capital, particularly from 
Holland, was sent to England for safe keeping and invest- 
ment during the wars. These twenty years were in the 
period of the introduction of steam power, and at the over- 
throw of Napoleon England was a generation ahead of 
Europe in industrial development. The United States was 
barely making a beginning in manufactures. This start 
gave England the pre-eminent position in manufactures and 
international commerce which she has since held. She en- 
tered upon her wonderful career as the world's banker and 
carrier and as an exporter of capital and undertaker of en- 
terprises in all countries. English contractors did the early 
railway construction on the continent, the rails and equip- 
ment were made in England, and even the labor of grading 
and tracklaying was largely performed by English laborers 
taken out by the contractors because they were experienced 

12 



in such work. The first machine shops and factories on 
the continent were equipped with English machinery and 
manned with English mechanics. A report of a Parliamen- 
tary committee in 1824 showed that there were three engi- 
neering works near Paris owned and entirely conducted by 
Englishmen, from 300 to 500 English artisans being em- 
ployed in each. The same report estimated that 16,000 
English artisans had emigrated to France in the two years 
1822 and 1823. It was estimated that in the ten years fol- 
lowing the close of the war English investments abroad 
averaged $50,000,000 per year, a very large sum for that 
time.* 

In 1840 another Parliamentary committee reported that 
the cotton mills in Vienna, at Rouen, Liege, and in Holland 
were manned by foremen from Lancashire and Glasgow, 
and in many instances had been built with British capital. 
England was exporting capital in the form of engines, ma- 
chinery, and all kinds of equipment and manufactured 
goods. 

ENGLISH INVESTMENTS IN THE UNITED 
STATES 

The story of England's investments in the United States 
is familiar. She equipped our early railways and factories. 
In 1825 several issues of United States Government bonds 
and of State and municipal bonds were listed on the Lon- 
don Stock Exchange, and shares of the Bank of the United 
States were traded in. In 1836 the first American railway 
loan was recorded, Baring Brothers purchasing $2,000,000 
of the bonds of the Baltimore and Ohio Railway. In 1869 
David A. Wells, Special Commissioner of Revenue, in an 
official report, estimated the total of foreign investments 
in the United States, including the holdings of our Govern- 
ment debt, at $1,465,500,000, much the greater part of 
which was owned in England, although Holland and Ger- 



K J. A. Hobson: "The Export of Capital," p. 106. 

13 



many held considerable amounts. Thirty years later, in 
1899, although our national debt had passed almost entirely 
out of the hands of foreigners, and large amounts of our 
railway securities had been returned during the preceding 
decade, Prof. William Z. Ripley, of Harvard University, 
estimated the total of foreign investments in the United 
States at $3,100,000,000. 

About that time began the new era of reorganization and 
reconstruction with our railways when capitalization, which 
had only increased ten per cent in the preceding ten years, 
which had been a period of agitation over the standard of 
value, increased seventy per cent in the next ten years. In 
1909 Sir George Paish, the English economist, in a paper 
prepared for the United States Monetary Commission, stated 
that the sum total of American issues quoted in London 
was $9,000,000,000, and that Great Britain's investments in 
this country amounted to $3,500,000,000. He calculated 
French investments here at $500,000,000, German invest- 
ments at $1,000,000,000, and placed the total amount of 
European holdings in the United States at $6,000,000,000. 

INVESTMENTS ADVANTAGEOUS TO BOTH 
LENDERS AND BORROWERS 

England has profited largely by the part she has played 
in the development of other countries, but they have 
profited as well. The capital received from her has enabled 
them to increase their production, to make savings, and to 
create investment funds of their own, with which they have 
not only continued their own development, but made ad- 
vances to other countries less developed than themselves. 
New England, originally financed by old England, in turn 
financed the Middle West, and now the Middle West has an 
investment fund of its own, and is a great market-place for 
securities. When I was a boy in Iowa ten per cent was the 
common interest rate on farm mortgages. 

14 



The United States has overflowed into Canada, Mexico, 
Cuba, and Central America with investments no doubt ex- 
ceeding $1,000,000,000. France, Germany, Holland and 
Belgium in recent years have been investing heavily abroad. 
The older and more advanced countries are constantly equip- 
ping and developing the new or more backward countries, 
thereby opening up new sources of food supplies and raw 
materials. 

EFFECTS ARE CUMULATIVE 

As we have seen, the effect of these savings is cumulative. 
A part of the increasing production is absorbed in better 
living, which makes the population itself more efficient, and 
a part is saved for the investment fund, and goes into more 
efficient equipment, with the result that more gains are made. 

GAINS IN ioo YEARS 

About 100 years ago, before the effects of the introduc- 
tion of machinery were fully appreciated, the outlook for 
the masses of the people was thought to be very gloomy. 
The command of man over the resources of nature did not 
seem to be equal to the task of providing even a miserable 
living for the increasing population, to say nothing of 
ameliorating their conditions. People seriously discussed 
starvation and plague and war as inevitable and possibly 
beneficent means of limiting the population. 

Since then, and as a result of the changes in industry 
and transportation, the population of the United Kingdom 
has grown from 18,000,000 to 45,000,000, or 150%; its 
wealth has grown from $12,500,000 to $85,000,000,000, or 
over six hundred per cent, and its annual income has in- 
creased from $1,500,000,000 to about $12,000,000,000. 

During the same time the population of France has grown 
about 33 per cent, but its wealth has expanded from about 
$10,000,000,000 to nearly $50,000,000,000, and her annual 

15 



income has increased in about the same ratio. Germany in 
the same time has seen a growth in her population from 
24,000,000 to 65,000,000, and from being a comparatively 
poor country to a stock of wealth estimated at $70,000,- 
000,000. 

And while these countries were making gains as shown, 
they were all contributing largely to the population and 
prosperity of the United States. Our population in one 
hundred years has grown from 8,000,000 to 100,000,000, 
and the national wealth from about $1,750,000,000 to ap- 
proximately $150,000,000,000. The national income is es- 
timated by Sir George Paish to have increased from $500,- 
000,000 to $35,000,000,000. 

ANNUAL SAVINGS 

According to Sir George Paish, the annual savings, or 
net gains, of the United Kingdom are approximately $2,000,- 
000,000, of Germany about $1,500,000,000, and of France 
about $1,000,000,000. The United States Census volume 
upon "Wealth, Debt and Taxation," issued in 1907, gives 
the wealth of this country in 1900 at $88,577,306,775 and 
in 1904 at $107,104,192,410, showing a gain of $18,586,- 
685,635 in four years or about $4,650,000,000 per year. 
This included the rise in land values, but the actual accu- 
mulations are now probably close to that amount annually. 

INVESTMENTS IN OTHER LANDS 

Sir George Paish estimates that of the wealth of Great 
Britain not less than $50,000,000,000 is now employed by 
others than the owners, or, in other words, is in the general 
investment fund, and that $20,000,000,000 is invested in the 
colonies and foreign countries. He calculates that upward 
of one-half the annual savings or about $1,000,000,000, is 
supplied to States, municipalities and corporations by the 
purchase of bonds and stocks. He is of the opinion that 

16 



the lending countries now have invested in other countries 
upward of $40,000,000,000, and, discussing the effect of 
these investments upon the trade and progress of the world, 
he says, in part:* 

"The investment of this vast sum of over £8,000,000,000 of foreign 
capital, mainly in the young countries, has not only brought about this 
great expansion in the income of the lands in which it has been em- 
ployed, but has added immensely to the income and accumulated wealth 
of the nations which supplied the capital. It is true that the propor- 
tion of the created income accruing to the lending country is ex- 
tremely small, and that almost the whole is derived by the citizens of 
the country in which the capital is placed ; nevertheless, the lending 
nations largely participate in the wealth created, as the increased pro- 
ductions of the borrowing States enables them to exchange much 
larger quantities of goods with other countries. In fact, the profitable 
employment of capital in any part of the world not only gives a great 
stimulus to production in the countries in which the money is placed, 
but increases the production and commerce of all countries, and espe- 
cially of the lending nations. 

"Two generations ago the nations of Europe depended almost en- 
tirely for their means of subsistence upon their own productions ; and 
not only did they seek to be self-contained as far as possible and to 
avoid reliance upon other nations for necessaries, but it was impos- 
sible for other countries to supply them with any large quantity of 
goods. The aggregate value of the imports of what are known as the 
five lending countries of Europe at that time was less than £250,000,000 
per annum. Mainly in consequence of the willingness of these five 
countries to supply other States with the capital needed for their de- 
velopment, an immense impetus was given to production throughout 
the world, and these five States are now purchasing over £2,000,000,000 
of goods per annum from other countries Indeed, not only do they 
pay for all these goods, but they are supplying capital to other coun- 
tries for permanent or temporary use to the extent of nearly £400,000,- 
000 per annum." 

CAPITAL AND INCOME AS THEY ACTUALLY 

EXIST 

We talk of capital and income in terms of money, and 
people are apt to think of them as money. We would com- 
prehend them better if we thought of them as they actually 
exist, i.e., in the form of useful things. The gains of a 



*London Statist, May 23, 1914. 

17 



people in an economic sense are in the things that minister 
directly to their comfort and culture, such as houses, fur- 
nishings, food, clothing, means of transportation, libraries, 
education, recreation, etc., or in equipment that enables 
them to produce these things more easily in the future. 
Obviously a large part of the gains of society in the past 
hundred years have been in the latter class, and as a result 
the effectiveness of the average worker is enormously 
greater now than it was a hundred years ago, the total 
amount of goods produced and distributed is correspond- 
ingly greater, and the average man lives among comforts 
and conveniences and beneficial influences undreamed of at 
that time. 

EFFECT UPON SOCIAL CONDITIONS 

If we want to properly appreciate these gains we must 
not only compare the lot of the average person living in 
the above-mentioned countries now with that of the aver- 
age resident one hundred years ago, but endeavor to imagine 
what the lot of the average resident would be if the pres- 
ent populations were trying to live in those countries under 
the conditions of 100 years ago. With the increasing 
population of all countries the struggle for existence, to 
say nothing of a struggle for better conditions, must be 
increasingly severe unless improvements are made in the 
methods of production. 

The entire population of England has been benefited by 
the accumulation of its investment fund, and by its use in 
the construction of steamships and in the development of 
the new countries from whence have come its supplies of 
food and raw materials. Food is cheaper in England now 
than it was 100 years ago, and so are practically all of the 
comforts of life, although the population has multiplied 
two and one-half times. Furthermore, as the capital sup- 
plied by England to other countries has been mainly ex- 
ported in the form of machinery and other manufactured 

18 



goods, an enormous demand for labor has been created 
thereby, employment has been provided for the increasing 
population, and with capital increasing faster than popu- 
lation average wages have more than doubled in that time. 

COMPLAINTS OF INEQUALITY OF DISTRI- 
BUTION 

It seems almost superfluous to recite the foregoing well- 
authenticated facts showing the development of industry 
and the enormous accumulation of capital that has resulted 
during the last hundred years, and that is now going on at 
a constantly increasing rate. The facts are known and 
nowhere disputed. And yet while the facts are familiar 
their full significance is certainly not generally understood. 

On all sides there is complaint that this newly created 
wealth has not been fairly distributed. A great many peo- 
ple are unable to find any satisfaction in this record of 
accumulation because, as they say, the people do not share 
in it with any fair degree of equality. Some very distin- 
guished leaders of our public life have gone so far as to 
declare that society is no longer interested in increasing 
production, the important problem now being that of dis- 
tribution. 

Now, with all respect for the excellent and well-meaning 
people who advance these opinions, I am sure that they are 
to a great extent erroneous, and based upon a hasty and 
superficial view. 

A MISTAKE OF THE CRITICS 

It is evidently quite impossible to set up and enforce any 
abstract rule by which a direct distribution of the entire 
social income can be made to each and every member of 
society according to the value of his own contribution to 
it. Without entering upon any such vague discussion as 
that, the comment I wish to make upon these complaints 
is that they leave one of the most important factors in the 

19 



situation entirely out of the account. They make no allow- 
ance for the community gain from the accumulation of pri- 
vate capital. They ignore all the benefits I have been re- 
viewing. They assume that nobody is interested in the 
investment fund except to the extent that he is a part owner 
of it. They make up their case as though all of the in- 
creasing supply of goods resulting from the increasing em- 
ployment of capital was absorbed by the capitalists. Of 
course, this is not a true representation of the facts. It is 
as though they should claim that nobody had ever benefited 
by the steam engine but the owners of engines ; that nobody 
had ever benefited by the railways but the owners of rail- 
way shares, that the progress in the textile industries con- 
cerned only the manufacturers, and so on all around the 
circle of industries. It would seem that the position needs 
only to be stated for its fallacy to be apparent. 

But, the critics will say, granted that the millions of wage- 
earners derive some benefits as consumers from these vast 
accumulations of capital in the form of industrial equip- 
ment, their share of the total benefits is manifestly too 
small ; they have a living, and little more, to show for their 
labors, while the comparatively few capitalists are owners 
of all this property. 

Very well, if it is admitted that all of the members of 
the community as consumers derive benefits from the in- 
creasing production of goods, let us now turn and 
see how much benefit the capitalist derives from own- 
ing the equipment. Can he absorb any benefits except in 
the same capacity, i.e., as a consumer? Evidently not. It 
is true that he will probably consume on a larger scale than 
his employee. He may live in a larger house, keep an auto- 
mobile, travel abroad and spend more on his table and in 
many other ways. But these expenditures, representing 
consumption, include the only part of his income that is de- 
voted to himself. All the rest of it is added to the invest- 
ment fund, in which it is now agreed the entire community 
is interested. 

20 



CONSUMPTION, NOT OWNERSHIP, REPRE- 
SENTS THE REAL DISTRIBUTION 

If this statement is correct, whenever a person reaches 
the position where his income is permanently above his per- 
sonal and family expenditures, all additions to it go to bene- 
fit the public. This, of course, is provided the surplus is 
invested for productive use and its proceeds reinvested con- 
tinually in the same manner. There is no escape from this 
conclusion after the admission is made that the public does 
share in the benefits of the investment fund, for if the owner 
continually returns his share of the fund's earnings nobody 
but the public draws from it. 

It appears then that if we wish to measure the actual 
division of gains accruing in the last hundred years, as be- 
tween capitalists and the rest of the community, a wholly 
different basis must be adopted from the one commonly 
used. The entire industrial plant that has been built up in 
this time must be left out of the calculation. This plant is 
permanent, except as it is from time to time replaced, and 
is of no use to anybody except as it produces a flow of bene- 
fits. All of the values of the plant come out in this flow, 
hence it is the division of the flow that should be measured. 
The idea that all of the capital invested in the modern in- 
dustrial plant has been taken away from the public and ap- 
propriated by the owners to their own exclusive use is a 
chimera. The truth is that the plant is devoted to public 
use, in supplying public wants, as truly as if owned by the 
State, although the private owners have a first claim on the 
net product for what they want to consume themselves. 
The rest of the product goes to the public, either directly in 
articles of consumption or in additions to the equipment for 
production. 



21 



EXPENDITURES FOR CONSTRUCTION MUST 
CONTINUE 

When this is seen the division which troubles so many 
good people takes on a very different aspect. They have 
been thinking about an equalized division of all income, in- 
cluding what now goes into the investment fund. But if 
all profits were distributed for current consumption the 
enlargement and improvement of the industrial plant would 
stop and progress come to an end. If society is to go on 
perfecting its control over the forces of nature, and con- 
stantly increasing the flow of desirable things, as it has 
been doing in the last hundred years, it must continue its 
expenditures for experiment and construction. Even if the 
State owned all of the industries it would have to do the 
same. 

WHY MEN STRIVE FOR MORE 

It may be asked why, if all this is true, men will labor 
and struggle to add to their fortunes, which already afford 
income beyond their personal or family requirements? 
That question has been always asked. The answer is that 
it is in them to strive and to accomplish, and that the great- 
est satisfaction any human being can have is found in the 
exercise and development of his faculties and in successful 
achievement by their use. The title deeds of property are 
to a successful man like titles of nobility. They are titles 
of achievement. He goes on adding to them because there 
is satisfaction in doing so, but it does not signify that more 
titles bring him one iota of tangible return or reduce by one 
iota the income of any other man. On the contrary, his 
efforts increase the common fund from which he has ceased 
to draw. 



22 



THE QUESTION OF STATE OR PRIVATE 
MANAGEMENT ONE OF EFFICIENCY 

It appears then that there is nothing to be equalized but 
personal expenditures. The problem is reduced to the 
question whether the captains of industry and their de- 
pendents consume an undue share of the products, and 
whether the net product would be greater if private own- 
ership was abolished and the management of all industry 
placed in the hands of a steering committee, nominated in 
the primaries and elected at the polls. I do not intend to 
enter upon that subject further than to refer in passing to 
the recent statement, attributed to the Postmaster-General, 
that $20,000,000 a year could be saved in putting the rural 
delivery of mail under the contract system. It is apparent 
that whatever the possibilities of gradual development may 
be, and I would not set limits upon progress in that man- 
ner, there is such a thing as going too fast in the Govern- 
ment operation of industry. 

EQUALIZING TENDENCIES 

The experience of the past has shown that certain equal- 
izing or levelling tendencies are always at work. They are 
constantly reducing the value of what has been inherited 
or handed down from the past and adding to the rewards 
of what is done today. The productive equipment of fifty 
years ago, which was wealth then, is worthless today, made 
so by new ideas, born of our own time, and the equipment 
of today will lose its value in the same manner. Even the 
knowledge or skill of a trade, which is capital to its owner, 
loses its value if he fails to keep pace with the changes 
in the trade; and in like manner the good will and prestige 
of an old business, and all similar acquirements and advan- 
tages, will lose their value unless the management is con- 
stantly reinforced by new vitality and kept abreast of the 
times. This is a levelling process that never ceases and yet 

23 



never establishes equality, for there are always new leaders 
forging ahead. All the advantages of "being first in a new 
industry or with a new process are speedily lost. They 
enable a new set of fortunes to be made, and for a time 
the benefits go chiefly to the owners and to the investment 
fund, and then as the entire industry advances to the new 
level of efficiency the direct distribution of benefits to the 
public increases. And so the whole industrial organization 
moves up from one stage of productiveness to another, de- 
stroying the value of past investments as it rises, but con- 
stantly increasing the annual output. As a result of this 
movement there is now a nearer approach to equality in 
expenditures for what are commonly recognized as neces- 
sities and comfort than at any time in the past. There are 
smaller differences now between people of various occupa- 
tions or degrees of wealth, as to the food they eat and the 
clothing they wear, and as to housing conditions, sanitary 
surroundings, medical and surgical care, education, recrea- 
tion, facilities for travel and communication, and the gen- 
eral conditions of life that make for culture and opportu- 
nity, than ever before. These are the things as to which 
it is really essential that there shall be equality. It is not 
important that there shall be equality in anything else — 
certainly not in costly dinners, extravagance of dress, or 
mere display of possessions; these are superfluities and 
vanities which nobody should want, and which genuine cul- 
ture will ultimately eliminate. 

INEVITABLE DISTRIBUTION 

The truth is then that notwithstanding much said to the 
contrary the natural development of society is steadily 
toward equality. There are inherent and unseen forces 
that work everlastingly to this end. The leaders and or- 
ganizers who are effective in enlarging production come, 
by virtue of their functions, into control of the 
productive machinery, but they consume an insignifi- 

24 



cant portion of the product. The rest goes to the public, 
by one route or the other. If they seem to apportion, and 
in some instances do apportion, too small a share directly 
to their employees in wages, the remainder goes into the 
investment fund and creates a new demand for wages and 
a new supply of products, thus strengthening the employee's 
position both as a wage-earner and as a consumer. What is 
withheld from the wage-earning class at one point is thus 
restored to it at another. Individuals, in instances, may 
not have justice, but the broad movement is beyond con- 
trol. Natural laws never have taken much account of in- 
dividuals, but it should be remembered that as individuals 
we have all benefited by the labors of those who have gone 
before us, and if the fruits of some of our own labors 
escape us and are passed on to our children it is only an 
equalization of benefits. We are glad to work for our 
children, and it is reassuring to know that what one gen- 
eration fails to divide and consume becomes capital for 
the generation that follows. With capital increasing faster 
than population, and production increasing faster than pop- 
ulation, the race is constantly lifted to higher levels of life 
and opportunity. The new man, the child born into the 
world today, has a higher and more commanding position 
and possesses in his own faculties the equivalent of greater 
wealth than the child of any other year since the world 
began. 

THE KIND OF EQUALITY DESIRED 

So far as ownership of the industrial plant is concerned 
the public is chiefly interested that the management shall 
be intelligent and efficient, and that the flow shall be as 
large as possible. As the general standard of living rises, 
and as all of the people come into the enjoyment and ap- 
preciation of new opportunities for culture and develop- 
ment, the way will be open for a broad approach toward 
equality in those mental and moral traits that make men 

25 



efficient and successful, and that fit them for responsi- 
bility. 

This is the kind of equality toward which, let us hope, 
the race is moving, and as it makes progress the question 
of equality in the ownership of property will take care of 
itself. The mistake of the critics is in thinking that con- 
ditions are fixed and permanent except as they can labori- 
ously change them, whereas society is in process of evolu- 
tion by its own natural forces. 

WHEN THE VALUE OF THE INVESTMENT 
FUND IS KNOWN 

When the value of the investment fund as an agency of 
social progress is fully understood, a vast change will come 
over the attitude of classes toward each other, and in the 
efficiency of the industrial organization. The essentially 
cooperative nature of our present form of society will be 
seen. Everybody will be interested in having everything 
done by the most efficient and economical methods, in order 
that the fund may rapidly increase; and if fortunes result 
from successful innovations and from savings that had 
previously gone to waste, the public will rejoice in them 
as new wealth for the benefit of all. Most of the bitterness 
of present-day controversies will disappear. The owners 
of fortunes and managers of industries will themselves 
comprehend more clearly their true position in society and 
the responsibilities that belong to them. 

The wastes of war will appear more terrible and more 
reprehensible even than they do now, for with the cooper- 
ative character of industry clearly made known it will be 
seen that no nation is in the way of any other nation, or 
can ever be injured by the prosperity of any other nation. 
The richer each nation becomes, the more capital it has to 
invest; the greater its powers of production, the more help- 
ful it is to all the rest of the world. 

26 



And not only will 
but so also will be 4 
everyday life — the v 
ance, of inefficiency, 
trained, undirected, i> 
which may be reclaim 
and clothed in its righ 

A CON( 

I am persuaded, in closing, lu gi^e one concrete example 
which illustrates the wastes to which I have just alluded, 
and also the value of the investment fund in dealing with 
them. The International Health Commission (Rockefeller 
Foundation), located at Washington, at my request has 
given me the following memoranda of a case of which I 
had incidentally learned something: 

"The family was on the pauper list of Lamar County, 

Mississippi. The county had spent about $2000 on this family. Some- 
thing over three years ago Dr. Whitfield, one of our field directors 
in Mississippi, was conducting the dispensary work in Lamar County 
for the relief and control of hookworm disease. This family was 
examined and found to be heavily infected. They were treated. Soon 
after being treated they were taken off the pauper list. We have a 
letter from Mr. J. D. Hatton, a member of the Board of Supervisors 
of this county, living at Sumrall, Mississippi, stating that this family 
had been taken off the pauper list as a result of their treatment for 
hookworm disease. On September 9, 1914, we received a letter from 
Dr. W. S. Leathers, State director of the work in Mississippi, stating 

that this family is now living in County, Mississippi, and 

that the family made more than 10 bales of cotton last year." 



Copies of this pamphlet can be had by addressing H. M. Hanson, 
Secretary-Treasurer, Farm Mortgage Bankers' Association of 
America, 518 Merchants' Loan and Trust Building, Chicago, Illinois. 



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